Meaning of work bonus income
Work bonus income is the sum of:-
· The person’s employment income for the period
· The person’s gainful work income for the period.
These terms are explained below.
Meaning of “employment income”
Employment income is income earned, received or derived from remunerative work as an employee, in an employer/employee relationship. Income from self-employment as a Sole Trader business, or other forms of business income, is not employment income but may be defined as gainful work income for the work bonus. See gainful work income.
Employment income in the form of salary, wages, commissions and employment-related fringe benefits satisfies the test of employment income.
In considering whether a person is receiving employment income or business income (as a self-employed Sole Trader or from a Partnership, Private Company or Trust), the same factors should be considered as in assessing whether the income should be treated as business income for the income test generally:
- persons receiving employment income would normally receive PAYG pay slips and Payment Summaries from their employer,
- employment income is recorded as a gross amount on a person's individual income tax return as “Salary or wages” or “Allowances, earnings, tips, etc”,
- business income of a self-employed Sole Trader is recorded in the Supplementary section of the individual's income tax return, allowing for deduction of expenses, and a net figure is transferred into the Income section of the tax return, and
- business income of a Partnership, Private Company or Trust is recorded in a separate business income tax return with net income distributions transferred into the individual's income tax return.
Income generated by a person's business is only employment income if it is paid by the business to the individual in the form of a wage or salary. To satisfy this requirement it must be shown as an expense (Salary or Wages, Directors' Fees) on the Business Profit and Loss statement and as “Salary or wages” or “Allowances, earnings, tips, etc.” on the individual's income tax return.
Director's fees are generally excluded
When assessing remuneration described as director's fees, it is necessary that the person receives the payment in the form of salary, wages or commission, in their capacity as an employee of the company, for the Work Bonus to apply.
Director's fees are therefore generally excluded from the meaning of employment income where the person is attributed with control over the company or entity making the payments. In these cases the person's ownership or control means that they are undertaking the role of employer, and the necessary conditions for the Work Bonus, that the person is performing remunerative work undertaken in an employer/employee relationship, is unlikely to exist. In this situation the business owner is permitted to reduce their assessable income by certain business losses and outgoings which are not available to employees.
Allowed director's fees
Where the entity's financial statements show that the remuneration received by a person with control over the company or entity is described as salary, wages, commission or employment-related fringe benefits, these payments can be regarded as not being director's fees and can be assessed as employment income.
Where a person works for a company or other entity in which they exercise no control, or has no association (e.g. no family connection) with those controlling the entity, remuneration designated as director's fees may be regarded as employment income where the delegate is otherwise satisfied that the person is genuinely undertaking work in an employer/employee relationship.
Royalty payments
Royalty payments are not employment income[glossary:.:] While remunerative work is being, (or has been), undertaken, the requirement for the person to be in an employer/employee relationship is not met.
Amounts not part of employment income
Amounts which are excluded from the employment income concession, requiring that they be assessed in full under the income test, are:
- superannuation payments,
- payments of compensation or payments under an insurance scheme relating to the person's inability to earn, derive or receive employment from remunerative work
- termination payments,
- comparable foreign pension payments, and
- leave payments to persons no longer involved in remunerative work.
Assessment of leave payments
Where a person has actually ceased working for an employer and has received payments in lieu of accrued leave, or has stopped work and is continuing to be paid outstanding leave entitlements leading up to the cessation date of their employment, these payments have no association with the person's engagement in remunerative employment. These leave payments are excluded from the meaning of employment income whether the payments are made as a lump sum, a series of regular payments or otherwise.
Sick leave, annual leave, maternity leave, long service leave and other leave types from which the person returns in order to resume their remunerative employment are assessed as part of employment income.
Veterans' Vocational Rehabilitation Scheme
Where invalidity service pensioners are participating in the Veterans' Vocational Rehabilitation Scheme (VVRS), an income safety net applies. This safety net allows for 50% of the pensioner's income to be disregarded during their first two years of participation in the VVRS, before reducing over the following five years at 5% every six months, until after seven years the full income amount is assessable.
As VVRS and work bonus both result in discounted employment income, the VEA allows the more beneficial pension outcome to be applied. Where the Work Bonus income test concession applies to a pensioner and the income concession amount is equal to or greater than the VVRS excluded income amount, the VVRS excluded income amount does not apply and the pensioner is given the benefit of the Work Bonus income concession. Where the Work Bonus income concession is less than the VVRS excluded income amount, the Work Bonus income concession does not apply and the pensioner is given the benefit of the VVRS excluded income amount.